5 Stocks Under $10

The market isn't cooperating.

This is January, historically a good month for young growth stocks. It certainly hasn't started out that way. Then again, maybe the weakness through the first half of the month -- in which the NASDAQ Composite is off by 7% so far -- is simply a buying opportunity.

I'll use that as inspiration in this month's installment of the "5 Stocks Under $10" column, which dates all the way back to 2001. Naturally, there are risks involved in scouring through the muck for stocks trading in the single digits. Some are obscure for a reason. Some fell out of favor for an even bigger reason.

I wouldn't be making these calls if I didn't believe in the potential of low-priced stocks. However, these are clearly volatile times; investments can be risky, and you'll be cheating yourself if you don't do your own homework.

Got that? Let's go.

Audible (Nasdaq: ADBL  ) -- $8.66
Can you hear Audible now? The leader in digitally delivered spoken-word content is on a roll. Through the first nine months of 2007, revenue climbed 34% higher. Margins have improved, resulting in a small adjusted-EBITDA profit in that time.

All 11 analysts following the company expect it to post a profit in 2008. They're not being kind. Audible has actually met or exceeded expectations in each of the past four quarters.

Despite the plethora of free podcasts, Audible has secured premium content that is clearly in demand as consumers flock to content-toting portable devices. Audible has also been shrewd enough to partner with the largest digital music distributors, turning potential threats into allies. Heading into a breakout year, it's hard to fathom still picking up shares of Audible at prices this low.

CDC (Nasdaq: CHINA  ) -- $4.02
Despite its ticker symbol and its ownership of the China.com portal, CDC's bread-and-butter business is actually enterprise software. These days, CDC is relying on corporate software solutions to deliver 90% of the company's revenue mix.

The company is coming off back-to-back disappointing quarters, but most of that carnage is the result of sluggishness in non-core mobile content, China.com, and its tough forays into the Chinese Web gaming market.

The key here is that thanks to its software core, CDC remains profitable. As far as Chinese growth stocks go, this is no Baidu.com (Nasdaq: BIDU  ) rocket. Estimates have been slashed, but share-price declines have CDC trading at 14 times next year's profitability target, making it a compelling value given the gobs of earnings it's generating -- even when it's not hitting on all cylinders.

Talbots (NYSE: TLB  ) -- $6.96
I may be nuts in singling out a tired apparel chain, especially as we head into an unsure economy in which women's clothing may be one of the first casualties of dwindling disposable income.

However, I like my low-priced stocks humble, and you have that in Talbots right now. Earlier this month, the mall chain announced that it would be closing all of its 66 Talbots Kids and a dozen Talbots Mens stores.

I had to laugh. That's so cocky. Who slaps a corporate moniker on a target audience and assumes it will work? Isn't this what got Gap (NYSE: GPS  ) in trouble? It was silly to expect the Talbots brand to resonate outside its core fan base. It's easy to be a Monday-morning CEO, but I would have been more clever and brand-distancing with the naming. How about Taltots for the kid concept? Why not J. Jack for the lads, since the company already owns J. Jill?

This isn't pretty. Losses have creditors concerned. Don't bank on that juicy 6.5% yield for too much longer. However, the analysts expect Talbots to eke out a small profit in the year ahead. The focus on its core shoppers will also serve it well. The next few quarters will be dicey, but I see Talbots surviving and ultimately thriving once the suburban shopping centers start buzzing again.

HouseValues (Nasdaq: SOLD  ) -- $2.90
The deluge of selling when it comes to HouseValues stock has made its ticker symbol ring true. Now it's time for the "value" in its name to live up to its side of the bargain.

I was one of the biggest critics of HouseValues two years ago. I just didn't like its HouseValues.com model of delivering leads to Realtors by dangling the prospect of a free home value assessment. I guess I was right, though the slammed real estate market sealed its fate.

Why is HouseValues back on my radar? Well, the company's sparkling balance sheet had $3.03 in cash and investments at the end of September. Yes, HouseValues is trading for less than its greenery.

It's not a perfect cushion, of course. Losses have mounted, nibbling away at its coffers. I do like some of the company's more user-friendly sites, like HomePages.com, though. With enough money to sit out the real estate malaise, it's an attractive stock. Its payoff won't be immediate, but the downside is limited if it can preserve its greenbacks.

Sify (Nasdaq: SIFY  ) -- $4.70
You would think that offering Web access in the world's second most populous nation would be a lay-up. Sify does exactly that, offering connectivity to consumers and companies in India, as well as running a chain of Internet cafes and providing other Web-based enterprise solutions.

Why is Sify's stock so cheap? Well, it has missed Wall Street's expectations over the past few quarters. Growth has also slowed. However, a return to profitability could have this story stock regaining its luster.

Five for the road
Turnarounds never happen overnight. These five stocks aren't trading in the single digits by accident. If I'm right about the catalysts, though, they may not be trading in the single digits for too much longer.

Finding promising stocks while they're still cutting their baby teeth is at the heart of the Rule Breakers newsletter. You can check it out for free this month with a 30-day trial subscription. There are nearly a dozen active stock recommendations in the growth-stock research service trading for less than $10 at the moment. Check those out, and I'll be back with more next month.


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